Please Choose: Summer 2009 - Winter 2007 - Summer 2006

Summer 2006
NEVADA CASE SUMMARIES (Summer 2006 Issue of Defense Comment)

OFFERS OF JUDGEMENT; CONSIDERATION OF PRE-OFFER, PRE-JUDGMENT INTEREST ON PAYMENTS MADE DURING LITIGATION

State Drywall, Inc. v. Rhodes Design & Development, 127 P.3d 1082 (Feb. 9, 2006):

State Drywall, a subcontractor, filed a breach of contract suit against Rhodes, a general contractor, seeking collection of moneys due under the contract. While the lawsuit was pending, Rhodes paid State Drywall two payments on the contract. After making payment, but before trial, Rhodes made an offer of judgment to State Drywall (pursuant to NRCP 68 and NRS 17.115), inclusive of costs. State Drywall did not accept the offer. The case proceeded to trial where the court found that Rhodes had breached the contract, but awarded State Drywall less than the offer of judgment. The court did not award State Drywall prejudgment interest on the two payments made to State Drywall during the lawsuit. The court awarded Rhodes attorney’s fees and costs, finding that State Drywall did not obtain a more favorable judgment then Rhodes’s offer.

State Drywall appealed contending that the trial court should have awarded it prejudgment interest on the two payments made by Rhodes during the lawsuit. Rhodes further argued that adding this interest to the amount of the judgment would have exceeded Rhodes’s offer of judgment; thus an award of fees/costs to Rhodes was error.

Supreme Court Opinion: Reversed and remanded. For purposes of determining cost-shifting under NRCP 68(g) and NRS 17.115(5), pre-offer prejudgment interest must be computed on payments made during the pendency of the lawsuit and added to the actual judgment when it is compared to the offer of judgment despite the offer’s silence on the inclusion of interest.

ATTORNEY’S FEES UNDER SUBSTANTIAL BENEFIT DOCTRINE; DE NOVO STANDARD OF REVIEW OF ARBITRATION AWARDS FOR EVIDENT PARTIALITY

Thomas v. City of North Las Vegas, 127 P.3d 1057 (Feb. 9, 2006):

Thomas and Armstrong (collectively “Thomas”) were terminated from their positions as Las Vegas police officers. Per a clause in Thomas’s collective bargaining agreement, he was entitled to arbitrate his grievances with the City of North Las Vegas. The City denied Thomas’s request for arbitration. Thomas filed suit against the City and the trial court compelled arbitration. Thomas then filed a motion for attorney’s fees and costs contending he was entitled to attorney’s fees under the substantial benefit doctrine. The trial court denied the motion. Thomas arbitrated his grievance. The arbitrator found that the City had grounds for discharge and upheld the terminations. Thomas filed a motion to vacate the arbitration awards for evident partiality of the arbitrator. The trial court vacated the arbitration award. The City appealed.

Supreme Court Opinion: Affirmed in part, reversed in part, remanded. To qualify for the substantial benefit exception to the America rule that parties generally must bear their own litigation fees and costs, the prevailing party must show that the losing party has received a benefit from the litigation. The elements of this doctrine require a showing that (1) the class of beneficiaries is small in number and easily identifiable, (2) the benefit can be traced with some accuracy, and (3) the costs can be shifted with some exactitude to those benefiting. Thomas has not shown that the City received a benefit from the litigation. Additionally, a money judgment is a prerequisite to recovery of attorney’s fees.

The arbitration awards should not have been vacated. A de novo standard of review applies to a trial court’s order vacating or confirming an arbitration award for evident partiality or manifest disregard of the law. The standard applicable to determine whether an arbitrator is partial, thus must disclose a relationship, is whether there is “a reasonable impression of partiality.” Under this standard, the arbitrator in this case did not have a duty to disclose his membership on a police officer union neutral panel of arbitrators.

OFFERS OF JUDGMENT; NO CONSIDERATION OF PRE-OFFER COSTS/FEES IN COMPARING AN OFFER TO JUDGMENT

McCrary v. Bianco, 131 P.3d 573 (Mar. 30, 2006):

McCrary contracted with Bianco to repair water damage to his residence. McCrary was unhappy with the work performed so he sued Bianco for negligence and breach of contract. During the litigation, Bianco served McCrary with an offer of judgment in the amount of $23,999, providing a separate award of statutory costs in the event of acceptance. However, the offer made no reference to prejudgment interest. McCrary rejected the offer.

The jury awarded McCrary a total of $15,800. Both Bianco and McCrary moved for attorney’s fees. The court awarded Bianco attorneys’ fees pursuant to NRCP 68 and NRS 17.115. McCrary appealed the award of attorney’s fees to Bianco.

Supreme Court Opinion: Affirmed in part, reversed in part, remanded. The trial court should conduct a post-trial comparison between the amount of the offer of judgment and the principal amount of the judgment when an offer of judgment provides for a separate award of costs. Pre-offer prejudgment interest must be included with the principal judgment amount when comparing the judgment obtained with an offer of judgment. However, two provisions in NRCP 68 and NRS 17.115 prohibit the inclusion of pre-offer fees and costs in the comparison where the offer provides for a separate award of costs. The trial court properly excluded pre-offer attorney’s fees and costs in making its comparison.

CONSTRUCTION DEFECT; EFFECT OF OFFERS OF JUDGMENT; EXTINGUISHMENT BY SUBSEQUENT OFFER

Albios v. Horizon Communities, Inc., 2006 W.L. 1099441 (Nev., Apr. 27, 2006):

The Albioses sued Horizon for construction defects in their single-family residence. Prior to trial, Horizon served Albois with three successive offers of judgment pursuant to NRCP 68 and NRS 17.115. The last offer was the amount of $100,000, exclusive of attorney’s fees and costs. None of the offers were apportioned between Mr. and Ms. Albois. The Albioses rejected all three offers. The case went to trial where the jury awarded the Alboises $100,000, which was reduced by 5% for comparative negligence.

Alboises and Horizon filed cross-motions for attorney fees and memoranda of costs. The trial court granted the Alboises’ motion and denied Horizon’s motion. As a result, the court awarded costs and fees to the Alboises. The trial court awarded prejudgment interest on the judgment but denied interest on the attorney fees/costs. Both parties appealed.

Supreme Court Opinion: Affirmed in part, reversed in part, and remanded. Although NRS Chapter 40 allows construction defect plaintiffs to recover attorney fees and costs as damages, it does not preclude application of the penalty provisions of Nevada’s offer of judgment rules contained at NRCP 68 and NRS 17.115. Under NRS 40.655 an award of attorney’s fees is not mandatory, but discretionary. When a party is foreclosed from recovering costs and fees under NRCP 68 and NRS 17.115, it is likewise foreclosed from recovering costs and fees under NRS 40.655.

With respect to Horizon’s multiple, successive offers of judgment, the Court concluded that the most recent offer of judgment extinguished all prior offers of judgment.

CHOICE OF LAW; TORTS; ADOPTION OF SUBSTANTIAL RELATIONSHIP TEST

General Motors Corp. v. Simmons, 2006 W.L. 1278713 (Nev., May 11, 2006):

Simmons, an Arizona resident, was driving his Chevy car in Nevada. Another vehicle struck Simmons car, causing it to roll over. The accident left Simmons with severe injuries. General Motors (“GM”) manufactured the car. GM was a Delaware corporation with its principal place of business in Michigan. Chapman, an Arizona business, sold Simmons the car in Arizona. Simmons sued GM and Chapman in Nevada state court alleging claims for negligence, breach of implied warranty, strict liability and emotional distress.

GM moved to dismiss the case for forum non conveniens, or in the alternative, asked the trial court to apply Arizona law. The trial court denied GM’s motion finding that Nevada law should apply. GM sought a writ of mandamus from the Nevada Supreme Court seeking to compel the trial court to dismiss for non conveniens or apply Arizona law. Chapman joined in the petition.

Supreme Court Opinion: Petition denied in part and granted in part. The choice of law analysis previously used by Nevada courts as set forth in Motenko v. MGM Dist., Inc., 921 P.2d 933 (Nev.1996)(“overwhelming interest test”) will no longer be used.
Instead, the most significant relationship test, as provided in Restatement (Second) of Conflict of Laws, sec. 145, should govern the choice-of-law analysis in tort actions unless a more specific section of the Second Restatement applies to the particular tort claim. Applying the substantial relationship test, the trial court should find Nevada law applies to Simmons’ causes of action against GM. However, under the same test, Arizona law should apply to Simmons’ claims against Chapman.

NEGLIGENT LOSS OF EVIDENCE; NEGATIVE INFERENCE INSTRUCTION

Bass-Davis v. Davis, 2006 W.L. 1278709 (Nev., May 11, 2006):

Bass-Davis slipped and fell on a wet floor inside a 7-11, operated by the Davises, franchisees. Within a week after the incident, Bass-Davis’s sister requested copies of the store’s incident report and surveillance tapes. The request went unanswered. Bass-Davis sued the Davises under a negligence theory, contending that her fall was caused by an employee who had mopped the floor but failed to post warning signs. During discovery, it was discovered that the surveillance tape was lost at sometime after the incident when it was sent to the Davises’ liability insurer. At trial, the Davises’ defense was that warning signs had been posted when Bass-Davis fell.

Bass-Davis offered a jury instruction on evidence spoliation and stating was entitled to an inference that, had the evidence been produced, it would have been unfavorable to the Davises. The trial court refused the instruction. The jury returned a verdict in favor of the Davises and against Bass-Davis. Bass-Davis appealed arguing that the trial court erred by failing to instruct the jury on the loss of evidence.

A panel of the Nevada Supreme Court issued an opinion that Bass-Davis was entitled to an inference that the lost evidence would have been unfavorable to the Davises. On petition for en banc reconsideration, the opinion was withdrawn.

Supreme Court Opinion: Petition granted; reversed and remanded. A permissible inference that missing evidence would be adverse applies when evidence is negligently lost or destroyed. This is different from the rebuttable presumption when evidence is willfully destroyed in that it does not shift the burden of proof. The trial court abused its discretion by refusing to issue an adverse inference instruction or consider other appropriate sanctions for the lost surveillance tape, which was the result of negligence, not willful conduct.

NO FIDUCIARY DUTY OR OTHER SPECIAL RELATIONSHIP BETWEEN SURETY AND PRINCIPAL; NO CLAIM FOR BREACH OF COVENANT OF GOOD FAITH AND FAIR DELING

Ins. Co. of the West v. Gibson Tile Co., Inc., 2006 W.L. 1278706 (Nev., May 11, 2006):

Gibson was a subcontractor on the Las Vegas Int’l Airport construction project. Insurance Company of the West (“ICW”) entered into a surety contract with Gibson, which contained a general indemnity agreement, to provide performance bonds on the project. Gibson failed to pay its suppliers on the basis they had provided faulty materials and because it was waiting for the general contractor, Perini, to release funds due Gibson. Gibson and ICW were sued by two material providers who made claims against the bond. Gibson hired an attorney to represent it and ICW. Gibson reached settlements with the suppliers.

Pursuant to a provision in the surety contract, ICW brought an indemnity action against Gibson contending that it had incurred costs in enforcing the terms of the contract and that is was entitled to recover certain funds paid to Gibson by Perini, which were used to satisfy the suppliers’ claims. Gibson counter-claimed asserting various claims for breach of oral contract. Prior to trial, the trial court entered an order effectively denying ICW an opportunity to pursue an indemnity claim under the terms of the contract between it and Gibson.

At trial, one of the instructions given to the jury, over ICW’s objection, was that a surety owes its principal a fiduciary duty. The jury found in favor of Gibson on its counter-claims awarding it both compensatory and punitive damages for breach of the good faith covenant. ICW appealed.

Supreme Court Opinion: Reversed and remanded. The trial court erred when it signed the order denying ICW the right to pursue an indemnity claim, which was expressly permitted under the terms of the contract. It also erred by giving a fiduciary duty instruction to the jury. As a matter of law, there is no special relationship between a surety and its principal. We have declined to extend tort liability to a surety for the breach of the good faith covenant. Without a fiduciary or other special relationship, there was no basis for the jury to award bad faith or punitive damages.

INSURANCE; NO CAUSAL CONNECTION REQUIRED TO APPLY UNAMBIGUOUS EXCLUSION

Griffin v. Old Republic Ins. Co., 2006 W.L. 1278704 (Nev., May 11, 2006):

Griffin was injured when a plane piloted by Jensen crashed into Griffin’s backyard. The plane was insured through Old Republic. The policy excluded coverage when “the airworthiness certificate of the aircraft is not in full force or effect” or “when the aircraft has not been subjected to appropriate airworthiness inspections as required under FAA regulations for operations involved.” Additionally, Jensen initialed a provision in the policy which stated there would be no coverage for the aircraft “unless a standard airworthiness certificate is in full force and effect.”

Griffin sued Jensen in state court. Old Republic filed a declaratory relief action in federal court seeking a declaration it had no obligation to pay damages to Griffin or Jensen because of the exclusionary language in the policy. The federal court granted summary judgment to Old Republic, finding that Nevada law did not require a causal connection between the exclusion and the loss in order for an insurer to avoid liability. A certified question was submitted to the Nevada Supreme Court: may an insurer deny coverage under an aviation policy for failure to comply with an unambiguous requirement of the policy or is a causal relationship between the insured’s non-compliance and the accident required?

Supreme Court Opinion: Question answered. Insurers need not establish a causal connection between an aviation policy exclusion and the loss in order to avoid liability so long as the exclusion is unambiguous, narrowly tailored, and essential to the risk undertaken by the insurer. The Old Republic policy’s exclusionary language is unambiguous. A causality requirement in Old Republic’s airworthiness exclusion will not be implied when no causality language is present.